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Estrategias Optimas De Cobertura En Presencia De Incertidumbre En Costos Y Cantidad

Author

Listed:
  • AUGUSTO CASTILLO R.

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

  • RAFAEL AGUILA

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

Abstract

This paper discusses how to achieve the optimal hedging of a cash flow when facing price risk of the product the company sells, when we are also in the presence of cost and quantity uncertainty. We present an analytical solution to the optimal hedging strategy in the general case and in some particular situations. We also obtain an expression to measure the efficiency of this hedging strategy. We identify the key parameters affecting the optimal hedging strategy, which are the volatilities of the random variables considered and the correlation coefficients among them. Finally we figure out how those parameters affect the optimal hedging strategy when the random variables present log normal distributions.

Suggested Citation

  • Augusto Castillo R. & Rafael Aguila, 2005. "Estrategias Optimas De Cobertura En Presencia De Incertidumbre En Costos Y Cantidad," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 8(2), pages 88-110.
    • Handle: RePEc:pch:abante:v:8:y:2005:i:2:p:88-110
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    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-8-N2/Aguila.pdf
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    References listed on IDEAS

    as
    1. Bhagwan Chowdhry, 1995. "Corporate Hedging of Exchange Risk When Foreign Currency Cash Flow Is Uncertain," Management Science, INFORMS, vol. 41(6), pages 1083-1090, June.
    2. Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
    3. Bessembinder, Hendrik, 1991. "Forward Contracts and Firm Value: Investment Incentive and Contracting Effects," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(4), pages 519-532, December.
    4. Kerkvliet, Joe & Moffett, Michael H., 1991. "The Hedging of an Uncertain Future Foreign Currency Cash Flow," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(4), pages 565-578, December.
    5. Moschini, Giancarlo & Lapan, Harvey, 1995. "The Hedging Role of Options and Futures under Joint Price, Basis, and Production Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 1025-1049, November.
    6. Castillo, Augusto & Lefort, Fernando, 2003. "Protección contra la exposición del tipo de cambio a largo plazo con contratos de futuros a corto plazo. El caso de los contratos forward en UF Chilenas/dólares," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(279), pages 423-456, julio-sep.
    7. Antonio S. Mello & John E. Parsons, 1995. "Maturity Structure Of A Hedge Matters: Lessons From The Metallgesellschaft Debacle," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(1), pages 106-121, March.
    8. Masahiro Kawai, 1983. "Spot and Futures Prices of Nonstorable Commodities Under Rational Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 235-254.
    9. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
    10. Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "Hedger Diversity in Futures Markets," Economic Journal, Royal Economic Society, vol. 93(37), pages 370-389, June.
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    Cited by:

    1. Rodrigo Alfaro & Natán Goldberger, 2012. "Cubrir o no Cubrir: ¿Ese es el Dilema?," Working Papers Central Bank of Chile 662, Central Bank of Chile.
    2. Rodrigo Alfaro & Natan Goldberger, 2020. "A note on currency-hedging," Working Papers Central Bank of Chile 859, Central Bank of Chile.

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    More about this item

    Keywords

    Hedging; Quantity Uncertainty; Chile;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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